Not long ago I was told a fascinating story by someone who used to work for one of the world's largest pension funds. A few years ago he realised that retired members of the fund often received their pension cheques late when the monthly payment date fell on a public holiday. So he changed the system so that payments were made before the holiday. A couple of days after the next holiday he received a phone call from an elderly retired fund beneficiary. She wanted to thank him for the change: it meant she had been able to go out and buy food for the weekend. Her income was so low that on previous occasions she had had to go hungry.
Investors all too often dismiss 'values' - their own and those of the society around them - as irrelevant, even taboo. Yet values drive what we pay attention to; what we pay attention to drives what we think and how we feel; what we think and feel drives how we act; how we act drives markets - and before you know it, 'values' have been transmuted into 'value'. A new report by the Farm Animal Risk and Return Initiative and ShareAction illustrates this perfectly.
Words are powerful. We use them to express our thoughts, but then they influence and amplify our thoughts. This in turn can affect the way we feel and act. And the way we act can determine the way people respond to us. Which in turn can determine the way we feel, think and act. Let’s look carefully at how the word ‘mainstream’ is used in the responsible investment world, and the implications it might have.
We need to continue to work on the ‘hard stuff’ – the ‘engineering’ of responsible investment, in the form of investment beliefs, policies, procedures, internal structures and reporting. This hard stuff can be hard; many asset owners still have a long way to go. But if the hard stuff is hard, the soft stuff is harder. Cultivating organisational purpose, identity and culture, and leadership throughout asset owner organisations that embeds and champions sustainability, is the next frontier for responsible investment – indeed for the investment industry as a whole.
Perhaps 'mainstream' portfolio managers are interested in 'ethical' issues after all - if only 'responsible investment' people talk to them in the right way?
Anyone working in responsible investment knows that it is an exercise in change management: changing investment organisations so that they give attention to environmental and social issues in a way they did not previously do.
Everyone I have put this point to has said, ‘Yes of course, Rob. We all know that’. So if it’s so obvious, why do we so seldom talk in these terms about what we do? A Google search for ‘organisational change management’ returns 27.7 million hits. A search for ‘responsible investment and change management’ returns none. Why is that? And why might seeing responsible investment more formally through the lens of change management help us do a better job - particularly if we acknowledge the human dimensions of why the behaviour of people and organisations changes (or doesn't)?
COP21 saw a coming of age of the investor voice on climate change. The signals were louder and clearer than ever before: climate change is a risk for investors, and they are prepared to take action to address it. At the same time, I saw some things in Paris that make me worry. Why does the investment industry work so hard to avoid the word 'ethical' - even in the face of a manifestly moral challenge such as climate change?
In this blog I reflect on the interesting parallels I see among emerging approaches to investment beliefs and strategy; recent thinking on fiduciary duty; and the world view of the world's greatest faiths. What these seem to have in common is a recognition of interconnectedness, and of the importance of functioning systems and their preservation.
Many asset owners have done a lot to develop the 'machinery' of responsible investment - policies, processes, systems. But we need to remind ourselves what it's for - to reconnect with the organisation's mission and purpose, to link ESG and responsible investment to long-term sustainable value creation and to delivering what pension members and other stakeholders expect and deserve.
Reflections on whether changes in the governance of UK defined contribution pensions are keeping pace with our understanding of how much sustainability matters to long-term returns, and to pension savers.
It is a fundamental starting point of responsible investment that the assets investors invest in are influenced by the world around them. Asset owners are increasingly feeling these pressures on their own organisations.
Muddled thinking on what responsible investment is trying to achieve leads to muddled strategy and ineffective actions. We need to think things through more clearly.